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Clarity Comes November 6

12:00 AM, Oct 6, 2012 • By IRWIN M. STELZER
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The prospects for such an acceleration in growth are not unambiguously bright. Indeed, the economy may well be slowing rather than picking up speed. The growth rate has been declining steadily, from 3.0 percent in the first quarter, to 2.0 percent in the second quarter to 1.3 percent in the third quarter, and some economists expect zero growth or recession in 2013. The year-over-year gain in retail sales in September for the 19 retailers tracked by Thomson Reuters was a tiny 0.8 percent, far below the growth in July (4.8 percent), August (6.1 percent), and last September (5.5 percent). Real spending is growing only modestly and incomes are growing more slowly than expected, according to Goldman Sachs. The hot apartment rental market seems to be cooling, with the decline in the vacancy rate in the second quarter the smallest improvement since early 2010. Reis Inc., which follows the property market for its clients, also reports that demand for office space is slowing somewhat.

Even more ominous for long-term growth prospects is the decline in world trade, as recession bites in the eurozone and growth slows in China. The World Trade Organization estimates that the global volume of trade in goods will expand only 2.5 percent this year, half the rate in 2011 and far below the 14 percent chalked up in 2010. Not good news for exporters. Oliver Blanchard, chief economist at the International Monetary Fund, now says, “It will surely take at least a decade from the beginning of the crisis for the world economy to get back to decent shape.” Since the crisis began with the collapse of Lehman Brothers in September 2008, we have about six years of a non-decent world economy ahead of us. And Americans who are comforted by the fact that we are at least eking out some growth while Europe is in recession might heed the warning of Bill Gross of Pimco, which manages $1.8 trillion in its several funds. He says that America’s reliance on debt is like “an addict whose habit extends beyond weed or cocaine and who frequently pleasures himself with budgetary crystal meth.” He reckons the U.S. must raise taxes or cut spending to the tune of $1.6 trillion per year, compared with the mere $200 billion in spending cuts and tax increases that would occur if America goes over the “fiscal cliff” at year end. One way or the other, whether we borrow until the bond vigilantes cry halt, or don the hair shirt of austerity, the outlook is not brilliant.

And yet, and yet. Auto sales continue to boom, rising in September by 12.8 percent over last year, hitting a 4½ year high as consumers continue to trade in their ageing vehicles. The manufacturing sector picked up in September for the first time in four months, and passed the 50-point mark that the Institute for Supply Management sets as the point at which a sector is growing. Both new orders and employment in that sector rose. The housing market continues to recover: prices are rising, new-home sales are about 28 percent higher than last year, and shortages of houses for sale are being reported in some regions. Private equity funds are sitting on $1 trillion, looking for deals, and corporations have a $2 trillion cash hoard, waiting for some clarity as to future tax and regulatory policy (the Republican view) or a government-stimulated increase in consumer demand (the Democrats’ Keynesian view). Presumably, the clarity businessmen say they seek will come on November 6, when we will learn whether businesses’ failure to invest is due to uncertainty or will be exacerbated by a new certainty: The tax increases and new regulations that President Obama is promising should he return to the White House to finish the job he has described as transforming America.

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